some say the days of our economic growth are numbered that soon there won't be enough basic raw materls. are the prophets of doom correct? this has been america's century. giant steps of economic growth have taken us from the auto age to the space age. our real gross national product has increased tenfold. our real income per person has tripled. can we keep up the pace? with the help of analyst richard gill we'll examine that question on this edition of economics usa.
the improvement in our standard of living can be tied to our economic growth since 1900. average workers enjoy three times as many goods. all of this because of a continuing increase in productivity, the engine of growth. 70 years ago in the auto industry a productivity revolution took off. how did it begin? why was it successful? turn of the century autos
were playthings of the rich. their purpose was not wholly clear. perhaps they were best in static pose. certainly, auto industry growth was static. dozens of models designed and produced differently-- the culmination of 19th-century craftsmanship. with buyers like astors, vanderbilts, whitneys, and winthrops setting the fashion, $5,000 a car-- $50,000 in today's dollars-- seemed nothing extraordinary. in a michigan machine shop there was another idea. could you get a car for under $1,000? in 1905, most of these cars were around $2,000. henry ford, a junior partner proposed a less expensive model n. his senior partners argued for the more expensive model k. alexander malcolmson and friends lost when ford bought them out with borrowed
money. thereafter, the ford would be self-financing with henry ford in control. first, he designed the right car, the model t. made for farmers they'd lurch through mud ford streams plow through the snow. there were still only 200,000 cars in a country of 89 million people. if ford could get the price down to $600 he could tap that vast market. but how? how to improve productivity? auto industry historian stephen meyer. labor turnover approached 370%. the quit rate was 370% of the work force. to maintain a work force of 13,000
he had to hire 54,000 workers a year. here's where we get the $5.00 day-- nearly doubling the unskilled workers' wages to provide the financial incentive for the worker to produce at a much faster rate and a much faster pace. ford got a grip on labor by doubling his workers' wages but he had to cut costs radically elsewhere. no longer would cars be built in one place from bottom up. the product and its parts would have to be standardized. ford said he wanted to make automobiles come through the factory all alike, just like a pin when it comes from the pin factory. the model t ford was a complicated product. it had about 5,000 parts. you could produce that part in large numbers very cheaply
if those parts never changed. once you accept the principle of a standard model of automobile along with large runs of that automobile then you can sit down and say "i'm going to build my factory to produce parts over and over again." this is important for machine tools and equipment. by 1914, ford had completed his plant. highland park cost almost $4 million with an additional investment of 3 million for equipment and tools. the moving assembly line was the ultimate revolution. the line needed conveyor belts with overhead drive shafts moving materials past stationary workers. chains and orhead cranes moved the chassis. and for final assembly
there were gravity slides and rollways. today it might look chaotic, jerrybuilt, but what was the bottom line? the productivity shot up and was carefully noted by ford managers. they discovered enormous increases throughout the entire plant. for example, the time to produce the chassis-- the main assembly line-- decreased from about 12 1/2 hours to 1 1/2 hours. the time for engine assembly also decreased from about 8 1/2 hours down to approximately 2 hours. there were increases of 200% up to 800% in the productivity at the ford highland park plant. each worker had more equipment around him. though wages doubled output increased more. in two years model t production rose from 78,000 to 500,000, and the price came down to $600 a
car, then in 1916 to $360 a car. here, indeed, was more than the farmer's car-- truly a car for every man. the ford revolution had massive impact beyond the model t. what happens is, the ford methods very rapidly diffuse through detroit. then they move from industry to industry. it becomes a national, in fact, an international movement. there's fordisimus in germany, fordizotzia in the soviet union. everybody is trying to copy ford's system of production. this tin lizzie might not look much, but its meaning extended beyond detroit and the auto age. it will not be forgotten. [honk] henry ford supplied more than the model t.
he gave us a model of economic growth. we asked economic analyst richard gill to discuss factors that contribute to increased productivity. we have heard the slogan "there's a ford in youfuture." there was a prominent ford in our past. henry ford gave us a lesson on the factors that make for economic growth. he showed us that in many industries bigger can be better. he took advantage of the rapidly growing american market to exploit what economists call economies of scale. as he increased production his average costs per car fell enabling him to lower the price and expand production. secondly, he increased labor productivity by expanding the amount of machinery,
plant, and equipment each laborer used. this was an increase in the capital/labor ratio. it was exemplified by those cranes, chains, and drilling machines that his workers used. thirdly, he did everything in new ways. he paid his workers more and designed a different product. he introduced a novel method of production-- the assembly line. he was, according to the great economist joseph schumpeter, an entrepreneur and an innovator. it has been said that yankee know-how made america great. henry ford was one yankee who did know how. 3...2...1... space. the race to reach beyond the limits of this planet captured the country's imagination in the 1960s. for decades americans have supported a major investment in the space program
and its accomplishments, like communications satellites. but with these satellites came the question, how does this far-out technology come down to simple dollars and cents? early this century tecommunicatiowent where wires went. fiiraculously, across the street, later from city to cit then wire went under the ocean and europe was on our doorstep. by the late fifties, international communications was busy. telstar, 1962. russian pre-eminence in space was more of a boost to telstar than was economic demand. within three years 100 transatlantic circuits were in use. by 1980, 20,000 circuits connected american business to all parts of the globe.
leasing a circuit dropped to 1/7 of its original amount. today, the private sector is having its own satellites deployed, this one from satellite business systems. what can this do for productivity on earth? through video conferencing top corporate management can now get a round table with counterparts and customers in europe or asia. participants are in awe of the new opportunities. that the camera sees all is often forgotten. sometimes it's safest to stick to old questions. how's your weather? it has brightened up. american banking is thoroughly at home with global technology servicing american companies instantly, wherever they may be. support on any one day for an american multinational
is described by chase manhattan banker michael urkowitz. without the technology without the instantaneous availability of information, that corporation might have had idle funds sitting in its account in frankfurt while at the same time sitting with possibly an overdraft on which it would pay substantial interest in mexico. with this technology the company can very efficiently in effect, fully deploy its financial resources around the world. technology comes down to earth when it affects your own pocket. linked with high-speed computers, satellite communication has an impact on the availability of personal credit. just as i can use my visa card to get cash in the united states i can use my visa card
while traveling overseas again to get cash. but those activities require a telecommunications and technology network which allows the bank or the merchant to validate that that's a good card with sufficient credit line behind it. so in business management efficiency, in banking for both corporations and individuals, satellite technology is aiding productivity and growth. how important is the field of communications to national economic growth? albert halprin of the fcc. telecommunications is a vital and central part of information transfer, which is a large and growing portion of what major companies have to do to operate. today, virtually 50% of our gross national product is involved directly or indirectly
with information use and transfer. advances in communications technology provide huge opportunities for growth in management productivity. perhaps unwittingly, perhaps politically, american business was launched into a new era by those early satellites of the sixties. futuristic space technology has rebounded to earth to spur productivity. it's not only opened up the communications industry. it has increased the potential of businesses relying on communications. in considering the benefits of this communications revolution we keep coming across the phrase new technology-- satellite circuits fiber optics digital data bytes, megabytes. is this typical of economic growth? does it always involve new technologies? we asked richard gill to comment. new technologies seem to be an important factor in economic growth
not just in satellite technology, but quite generally. one american economist who has studied this question is edward denison. he listed the factors that go into our growing gnp historically and then weighted them by their relative importance. for the period 1929 through 1969, he came to the following conclusions. first, he found that u.s. gnp had grown over that 40 years at an average annual rate of 3.3% per year. about 1.3% of this growth denison attributed to the simple expansion of population and labor. another .5% he attributed to an increase in the quantity of machines that the expanding labor force had to work with-- capital accumulation. these two items represent
the growth of inputs-- capital and labor-- and do not necessarily represent any new way of doing things. notice the big remaining item nearly half the growth rate, which represents increased output per unit of input. this is really where technolocical progress comes into play. here, we are dealing with new technologies, advances in knowledge, the increased education and skills of the labor force. it's responsible for nearly half our total growth and on a per capita basis, perhaps 75% or 80% of our growth. so the case of satellite communications is not really exceptional. ever since the steam engine, new technology has been systematically revolutionizing our lives. growth. in many parts of the world
growth means growth of population growth in poverty, growth in the scarcity of resources. today in america we take economic growth and our standard of living for granted. what if raw materials run out? what if population and pollution get out of hand? in 1972, a group of experts known as the club of rome issued a report called the limits to growth. what did they predict, and could they be right? on population... if current growth rates continue world population will double by the year 2000. when our grandchildren are old, the population will have doubled again. consequent pressure on land and food supplies would be tremendous. widespread famine and malnutrition would be all-pervasive.
on industry... the report concluded that if minerals and metals were consumed at the american rate global supplies would be exhausted in a few decades. they were called the club of rome because they met there. the writers of the limits of growth came from m.i.t. jay forrester, a group consultant summarized their conclusions. the forces are like an onion. peel off one layer and there's another limit. ultimately, there will be a combination of forces that make it impossible for the high growth rate of industrialization and the high growth of population to continue through the next century. population. jay forrester recounts their dire prediction on forces which will halt population growth.
those forces can be social perception that smaller families are necessary to long-term high quality of life. or it will come about by the sheer pressures of starvation or the social instabilities that will precipitate an atomic war. i thought there was a large scare element in it. while a professor at yale, henry wallich began to confront the doomsayers. some years ago i guess 10 years ago there were projections up to 30 billion people. i think they've gradually come down because population growth has diminished and yielded to the effect of higher standards of living. with higher standards of living and government persuasion, population growth can level off. disaster need not strike.
on pollution political considerations are as important as economic ones. anitpollution technologies are available, and the costs of cutting back emissions and cleaning up can be passed to consumers. another major subject in the limits-to-growth thesis involves basic resources minerals and oil. shortages were imminent, said the growth-busters. in the early seventies, they got a boost for their cause. one of the striking things for the club of rome was after the book came out, oil prices jumped up four times. people said, "uh-huh they're right." then five or six years later it jumped again, so that seemed to be pretty good evidence. now the price of oil is going down.
people are not concerned about a basic shortage in the long-distant future. the cartel is breaking apart. surely oil will run out in a few decades. not so, say oilmen. as long as there's a profit, new technology will keep supplies flowing. dr. ed david is president of exxon research corporation and a white house science adviser. with respect to discovering more, geologists today believe that you can use tomographic techniques which are similar to what is used in the catscanner for diagnosing disease for searching in the earth for new deposits of material. there are many new exploration tools such as satellites. the impending exhaustion of energy and mineral supplies had been predicted before--
in 1908, 1944, 1952. by now many minerals should be extinct. none is. a major survival factor has been substitution between metals and between alternative forms of energy. such conservation will continue to prevent long-run shortages. besides, the earth's crust is 30 miles thick. we've barely scratched thsurfac no wonder the doomsayers have been proved wrong. it seems unlikely that economic growth will stop because of too many people too much pollution too few resources. yet worldwide, there are vast differences between standards of living. in the next century, americans may accept lower growth rates as the rest of the world catches up. even though we've come to a slowdown, this is noing fatal,
not a collapse as limits suggests. low growth rate is not as good as high but 's certainly better than stagnation. the real point of these models is that man can learn to control his own future. we do have an influence on our future. we can think about what we want it to be and push it in those directions that will sult in a liveable rld. public prophecy about economic conditions 50 or 100 years in the fute is difficult. many experts believe that new technologies and motivaons of the marketplace are likely to overcome doom and gloom predictions. we asked analyst richard gill what our economic past may imply about the future.
during her industrial revolution great britain was running out of fests. she responded by shifting to a coal technology. production increased many times over. that has been the story of modern economic growth. we see it today in metals like copper and energy sources like oil. this scenao isn't accidental. it is built into the way the market mechanism works. we havfirst a growing shortageof some resoce s price goes up, tting in motion a seriesf responses. first, it comes profitable to try to find more-- we g added supply. it becomes advisable to use as little of this resource as possible-- we get conservation. thirdly, it becomes desirable to focus our scientific and technological attention
on developing new products and means of production that use other resources-- alternative technologies. historically there is little doubt about the matter. responses have not only met the resource shortage problem, but have overshot the mark by a great margin, leading to increases in productive potentialities. with population growth and pollution, it is difficult be so clear. in the matter of pollution as i've noted in earlier programs, the price system can't solve the problem by itself. active preventative steps will have to be taken. even in the case of pollution, new technology is likely to help considerably. my personal conclusion-- we may eventually choose to abandon a growth-oriented society. i doubt we'll be forced to
certainly not in the years immediately ahead. the recipe for economic growth. henry ford knew its ingredients. so do today's businessmen and entreprenes. what has been true for autos and communications will be true in the future as we strive for reasonable growth. there must be technology and investment in it balanced by protection of the environment. then productivity can be safely increased toupply the demand of our people. for economics usa, i'm david schoumacher.